The government has confirmed it will introduce the necessary legislation for the Pension Protection Fund long service cap.

In a written statement, Pensions Minister Richard Harrington announced the launch of a consultation on the draft regulations needed to ensure the long service cap in the PPF.

“The consultation will last for eight weeks and, after I have considered the responses, it is my intention to put before parliament amending regulations, with the expectation that the PPF long service cap will be in place from April 2017.”

PPF compensation is currently capped at £33,678, however it can effectively penalise long serving employees by treating them the same as higher earners with shorter service. From next year, the compensation limit is expected to be increased by 3 per cent a year for every additional year of service beyond 20 years, subject to an overall limit of twice the standard limit.

Despite provisions being made for this in The Pensions Act 2014, Harrington said the legislation has not yet been brought into force, as some changes were needed to secondary legislation. It is these changes on which he is now consulting on.

In addition, Harrington said the government also intends to introduce an equivalent cap for the Financial Assistance Scheme, from April 2018.

“The FAS provides financial support for those who lost significant amounts of pension because their defined benefit occupational pension scheme collapsed underfunded. Generally the FAS helps those schemes which were affected before the introduction of the PPF and ensures a person gets at least 90 per cent of the pension due at the point the scheme collapsed.

"This calculation is subject to a maximum cap. It is our intention to amend this cap so that it will, like the PPF cap, increase by three per cent for each full year of pensionable service, over 20 years subject to a new maximum of twice the standard cap.

“I will, in due course, be putting before parliament regulations to implement this new cap. So that the FAS scheme manager has sufficient time to plan for these changes, it is our current intention that the FAS changes will apply from April 2018. Those already being paid assistance will get the uplift applied to their cap amount from the implementation date although, as in the PPF, this increase will not be backdated."

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